American Rescue Plan - Unemployment Benefits
The unemployment rate in 2020 was 14.7% at its peak, second to only the Great Depression era.
That left a whole lot of people needing to draw on their unemployment benefits.
What was not communicated well at all was that unemployment compensation from the US government is considered to be taxable income.
Just like how your employers have you fill out a Form W-4 (or use a fancy software that lets you answer questions about your filing status) that determines how much money will be withheld from your paychecks, your state's unemployment office withholds income tax from your unemployment checks and pays that on your behalf to the IRS.
It is your responsibility to determine how much money is to be withheld from your paychecks (both from the government and your employers), to prevent having to owe money at the end of the year when you file your tax return.
It's never fun to owe the IRS, right?! Find out how the game is played to keep the majority of your money when you earn it, and limit the likelihood of having to fork over thousands every April. Read more here.
But back to unemployment benefits, and the American Rescue Plan.. many people, when drawing retirement, needed all of that unemployment money to pay their next month's bills or put food on the table.
Thinking of their tax bill 12 months later was not the priority. So, they chose to withhold the least from their unemployment benefits.
Doing this has now left thousands of people owing a lot of tax money.
So, in March, Congress passed the latest bill that excludes from income up to $10,200 of unemployment compensation paid in 2020 for tax returns having adjusted gross income less than $150,000. If married, each spouse receiving unemployment qualifies.
If you're filing with me, and this applies to you, this has been reflected on your return.
If you are not filing with me, holla at ya boy!